Turning 65 doesn’t make the choice between Medicare and FEHB any less confusing

Terry Gerton We’re going to tackle some frequently asked questions this morning, especially in the health care and health insurance space, because a lot of people have a lot of choices and a lot of questions and you’re the right person to answer them. So here we go. First question up. Is it better to use my sick leave before I retire or save it?

Tammy Flanagan Well, that’s a great question, Terry, and I do get that a lot. There’s a couple of ways to answer it, because first of all, from a purely financial point of view, your sick leave is worth a whole lot more when you take it, because you’re getting paid your full salary while you’re using it, you’re earning more sick leave. So definitely if you need to use your sick leaves, now I say use it judiciously because it is your short-term disability protection, but of course you need it when you need it. On the other hand, when it comes to adding that credit for sick leave onto your retirement, if you’ve been fortunate to be healthy throughout your career, then at least you get something for it, and something is better than nothing. But for every month of sick leave, you know, a month of stick leave is like a hundred and sixty hours, something like that. So for every monthly sick leave that you can add to your retirement benefit, it’s going to add one twelfth of one percent of your high three, which translates to maybe about $4 to $8 a month at the most. So it’s not going to give you a whole lot of extra money. I don’t even know if it’ll buy a cup of coffee for you, but if you add up 10 or 12 months of unused sick leave, then it’s going to show up as something a little bit more substantial. So I look at it as, feel glad if you have a big balance of sick leave. And unfortunately, you just can’t tell your boss I’m going on sick leave for the next six months. So unless you’re sick, and then of course you might need to. But yeah, sick leave is worth more as salary, but. At least you get something for it if you’ve been healthy.

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Terry Gerton Well that’s a good place to start and let’s follow up with that around some other terminology. We hear FSA and HSA all the time. So walk us through the difference and who should pay attention to that distinction as retirement approaches.

Tammy Flanagan Yeah, these are both tax savings benefits that we have is in the federal government. So an FSA, you know, open season’s not that far into the future, so it’s time to start thinking about it. But an FSA Stands for flexible spending account. And there’s three different types. You can have one for health care, you can have on for dependent care, child care, adult daycare, whatever you need that for. And then there’s a third one called a LEX FSA or a limited expense FSA. And that one you can use if you have an HSA. So an HSA is a health savings account, which goes hand in hand with a high deductible health plan. And that is much more flexible. So if you a high-deductible health plan, by all means, you contribute to that HSA, that’s the first thing, because you don’t have to use that every year. That belongs to you. It’s going to earn interest. It’s tax-free money going into it. It’s taxi-free when you take it out. For qualified expenses and it even earns interest tax free. So it’s like everybody says a triple tax advantage. So the HSA, I would say is far superior, but unless you have a high deductible health plan and unless you don’t have any other health insurance, you can’t use it. So then go back to the FSA and of course take advantage of that. And believe it or not, a very small percentage of federal employees use FSA. Even though I’m sure a very large percentage of federal employees have out-of-pocket healthcare expenses, whether it’s dental, vision, or just that deductible and copay. So definitely this open season, if you’re a federal employee, pay attention to FSA. If you’re an employee or a retiree, you can look into HSAs and those high deductible health plans, which are actually pretty darn good, even though they have a high deductible.

Terry Gerton Well, as we’re thinking about open season, then here’s one that trips people up. If I want my spouse covered under my federal health plan after I retire, what do I need to do before I leave government?

Tammy Flanagan Yeah, this one always comes up, like, do I have to have my spouse under my health plan for five years? Because as a federal employee, you have to health insurance coverage for five years before you retire, immediately before, in order to carry federal health benefits or even Postal Service health benefits into retirement. But your spouse does not have to have five years of coverage. In fact, you can bring a spouse into your FEHB plan after you retire. It could be during a qualifying life event when they lose their coverage, if they retire from their private sector job, or you can do it during any open season. So your spouse has a little more flexibility as far as you adding them in as coverage. You don’t have to have them covered the whole time. But I will remind people, and this one’s not quite as fun to talk about, but if you want your spouse to continue coverage, if you’re not here. You have to die with a Self Plus One or a Self and Family Plan because they can’t enroll themselves as a surviving spouse. And of course, in retirement, you have to leave your spouse’s survivor benefit for them to have the ability to continue coverage under your name.

Terry Gerton There’s a lot to consider there. Yeah, it’s real important. Probably take all of those considerations up in a separate conversation. Tammy Flanagan is principal with Retire Federal. So Tammy, let’s get to a group of questions then around an issue that really trips up a lot of people, and that is Medicare. How to think about their federal benefits, their FEHB benefits, and their Medicare programs. So if I’m eligible for Medicare at 65, and I also have FEHB coverage, why would I pay for both?

Tammy Flanagan Yep, that’s a real common question, too, because we’ve had this, for many federal employees, you’ve had the same health plan your entire career, even though you might have 20 or 30 different plans to choose from, a lot of people have the philosophy if it’s not broke, don’t fix it, so I’ll just stick with what I got, what I know, I know my doctors take it, and it’s served me well. The deductibles are generally fairly reasonable, the co-pays, co-insurance are affordable. So why add Medicare? Medicare is nothing more than health insurance for people 65 and older. And if I already have health insurance, why do I need both? So the combination of both is really actually pretty nice because many of your federal, in fact, every federal health plan has one of their benefits, whether it’s the high option, the standard option, whichever option it is, there’s gonna be one that really dovetails nicely with Medicare. And that health plan will generally say, if Medicare is the primary payer, we’re talking about hospital insurance part A and doctor’s coverage part B, if that’s your primary insurance, because you’re retired and your health insurance premiums are coming out of your retirement check, then Medicare is gonna be first payer and your federal plan only has to pick up the slack, only has pick up what’s different. So therefore those federal plans will sometimes waive all of your cost sharing so you no longer have to meet a deductible, co-pay, co-insurance. You’ve got pretty much close to 100% coverage, and on top of that some will add an incentive of helping pay for Part B. They’ll either reimburse you a portion of the Part B premium, or if you choose to join that plan’s Medicare Advantage plan, which is sometimes called Part C, you will get a reduction in your Part B premium right off the top of your Medicare Premium coming out of your Social Security check or however you pay it. So there are some real incentives to having the combination of both. But the real trick is knowing which federal health plan is gonna work best for you. And that’s where people get tripped up because no one wants to change their health plan. But sometimes that’s a good time to take a look.

Terry Gerton So these considerations could come in lots of forms. What does Medicare cover that FEHB plans typically don’t?

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Tammy Flanagan Well, that’s another good question because sometimes your federal health plans will have plan limits or limits of whatever the services that you’re looking for. For example, physical therapy. Your plan might cover it and you might only have a $25 copay, but it might only cover 30 visits or 40 visits or whatever that plan’s limit is. Well, Medicare’s rule is if your doctor says you need it and you’re getting better, it’ll pay for unlimited physical therapy And also many of the Medicare Advantage plans have the same rule, but to have a Medicare Advantage plan through FEHB, you have to have A and B of Medicare. So you can’t have that Medicare Advantage benefit with all its little perks of gym membership and everything else, if you don’t have Medicare parts A and part B.

Terry Gerton Does it make sense then to just have Medicare and not worry about the FEHB portion?

Tammy Flanagan No. I will say a big hard no, because Medicare by itself, Medicare A and B, does not have any catastrophic protection. So if heaven forbid, you have to be in the hospital or you’re in and out of the hospital multiple times in the same year, and if you know anybody in their 80s or 90s, sometimes that happens. Once you get to that limit of Medicare’s inpatient coverage, they pay no more. And so you might be on the hook for literally tens of thousands of dollars. So don’t rely on original Medicare by itself. It’s just not enough. It was always meant to be supplemented either by a Medicare supplement, or in the case of federal employees, a FEHB plan that works as a supplement, or of course, postal employees have the same thing under the postal health plan. So yeah, no, no Medicare by its self, but Medicare with FEHB or PSHB can be excellent.

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